Ian Hooper
Partner and Head of Banking & Payments, CAPCO

The coronavirus pandemic has demonstrated just how vulnerable our business and financial services landscape is, with the world now preparing for its first recession triggered solely by a pandemic since 1870. We know that business recovery will be slow and could continue to be painful for many, and so financial institutions must make payments as seamless as possible to facilitate circulation – and remain relevant.

As banks give consideration to segment propositions and product features, they should take into account the winners and losers in payments.

Losers
1.  Bad news might travel fast, but FX, leisure, hospitality and travel-related card businesses won’t: It is no surprise that COVID-19 pressures have had severe repercussions for foreign exchange (FX) transactions, and revenues and profits for card and payments providers, and those that focus on the travel industry therein.

2.  Cash comes with a health warning….  Literally!: The cash supply chain has slowed down dramatically since the coronavirus crisis took hold, with reports of cash going without the green for an average of 44 days. While cash is not proven to carry coronavirus, financial and retail industry bodies certainly encouraged contactless use by increasing the limit on contactless spending from £30 to £45, just in case.

3.  Plastic is not fantastic: There was already a perception that credit cards were not as popular with younger generations as they used to be. For millennials and Gen Z, debit, digital wallets16 and buy now pay later (BNPL) schemes like Klarna are gaining prominence. Since the COVID-19 lockdown took hold, almost a quarter of 18 to 24-year-olds (23 percent) have been using BNPL to fund purchases.

Winners
1.  E-commerce is booming (unsurprisingly): For card networks, acquirers and banks, there has been a significant increase in online spending which has helped to offset the impact of the decline in lucrative FX. However, there have been sharp falls in point of sale transactions and therefore a net reduction in payment volumes.

2.  As is contactless (obviously): Like online transactions, contactless payments have also had a good spell, with a 44 percent increase in tap-and- pay transactions since the week of 23 March. Sixty-two percent of consumers over the age of 65 are now using contactless methods.

3.  Digital wallets, in-app purchases and tokenized payment services could be in their heyday: Food delivery businesses with in-app purchase systems such as Uber Eats and Deliveroo have not only been able to continue through lockdown but thrived off their commissions. Meanwhile, Visa Token has been gaining significant traction in the US, and reduced fraud rates by 26 percent.

4.  Faster payments and BACS: As speed of payment has become more important, the volume of government disbursements increased, and more consumers and businesses chose to settle bills online, the average daily value of Faster Payments transactions in the UK rose by over 10 percent from Q4 2019 to the end of Q1 2020.31 With BACS, which is slower and often less expensive than FPS, daily transaction values have marginally increased in the same period.

5.  Cheques are not dead yet: While cheques are considered an old-fashioned payment method (well, over 361 years, to be exact) some banks have seen a resurgence in the number of cheques being digitally deposited during lockdown. Back in April, HSBC UK reported an increase of 30%.